The Impact of GSP+ to the Sri Lankan Apparel Industry

After two years of intense negotiations, Sri Lanka has obtained the GSP+ status. It is time to objectively look in to the new-found status and understand how it would have an impact on the economy. For this article, I will focus on the apparel industry although GSP+ will have an impact on many other industries as well.
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GSP+ allows free access to European Union for selected product groups. Apparel is one of them. In other words no import tariffs for the apparel exported from the countries who have GSP+ status. There are 9 countries in this category. Those are,
  • Armenia, 
  • Bolivia, 
  • Cape Verde, 
  • Kyrgyzstan, 
  • Mongolia, 
  • Pakistan, 
  • Paraguay
  • Philippines
  • Sri Lanka
Eligibility criteria includes, the countries applying for GSP+ have to be in the developing countries category. If the country is classified as a middle or high income country by the World Bank, then that particular country is not eligible for the GSP+ Status. 

The next criteria is, countries must sign a binding undertaking to maintain their ratification of the 27 conventions, and to ensure their effective implementation. These 27 conventions include, human rights conventions, equal rights and many more in that nature.

Further, GSP+ applicants must also accept without reservation the reporting requirements and monitoring imposed by those conventions. They must also agree to participate in and cooperate with the EU GSP+ monitoring led by the European Commission. This cooperation enables the Commission to monitor beneficiaries' compliance with their undertakings under the GSP+. Sri Lanka lost GSP+ in 2010 as a result of one of these routine inspection on alleged human rights violations
So what does GSP+ means to Sri Lankan apparel industry and how it will impact the apparel industries in the neighboring countries as well as other competitors of Sri Lanka?

In 2016 Sri Lanka exported US$1.3 billion worth of apparel to European Union. Over the last five years, Sri Lanka managed to either maintain or slightly improve the value of the exports to EU. Out of the total value, 80% of the exports sent to UK. With the Brexit, the benefit of GSP+ is only short term unless as an industry work to improve the market share towards other countries of the Europe. Due to historical reasons and lack of marketing skills most Sri Lankan industries are primarily focused on UK market. Most of the competitor countries increasing their presence in countries such as Germany, Spain and France while Sri Lanka is falling behind. It is important to use the newly received benefit for the advantage of the industry.

Despite Textured jersey posting an impressive profits for the year 2016, still Sri Lankan apparel industry heavily depend on the imported fabric and trims. Lead time and fluctuating raw material prices are still a concern regardless of the GSP+ status. In order to successfully compete in the market, it is important to create a unique image and an identity for the industry. Continuously work on the differentiation and focus strategy is utmost important as price leadership strategy is not a viable solution and would not help to secure orders.

Offering quick lead time, garments with heavy embellishments with new innovative solutions, zero tolerance on defects, using new sewing techniques such as bonding would certainly help. Further, focusing on sustainable environment practices, good labour relations and lean management would help to create a better identity and encourage buyers who are looking for responsible manufacturing partners to identify Sri Lanka as a destination for high quality apparel products with best labour and environmental practices and solutions. It is important to identify the core competencies of the industry and work on enhancing those instead of trying to compete in all angels.

About the Author: Dr. Charm Rammandala is the founder & CEO of IStrategy USA. He counts over two decades in fashion supply chain in diverse roles as Lean Manager and Model himself. He is an expert in rolling out programs in Lean apparel manufacturing and Sustainable labour costing. His former positions included being the first Lean Technologist at George Sourcing Services UK Ltd.

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